Solomon Lew’s clever — and technically legal — play for DJs true to form

Billionaire retailer Solomon Lew — back in the headlines for hijacking the $2 billion bid for David Jones — is an unnerving character, with his decades-long feuds and revenge served cold. He is also an expert in not breaking the law.

A case in point is the infamous Yannon transaction, often referred to in passing but rarely in detail.

Lew had been a director of Coles Myer since 1985, rising to become executive chairman. In 1989 Lew’s Premier Investments had borrowed heavily from ANZ to buy a 12.5% stake in Coles from Westfield for $450 million, and it was racking up losses as interest rates soared and the share price slid. ANZ insisted Premier raise $100 million through a preference share issue, underwritten by Rodney Adler’s FAI. Unknown to almost everyone, a trustee company called Yannon was set up by CS First Boston — just a few floors down from Lew at Melbourne’s 101 Collins Street — with the sole purpose of buying $25 million worth of the Premier preference shares, with finance and an indemnity from Coles. The deal cost Coles $18 million and effectively transferred Lew’s private losses over to the retail behemoth. None of this was disclosed by Coles.

The Yannon transaction was only revealed by Coles’ newly appointed finance director, Philip Bowman, who was determined to get to the bottom of it. Bowman was sacked for his efforts three months into his job, in September 1995, and immediately went public. It was a bombshell: had Lew misused his position as a director of both Coles and Premier? Lew stepped down as chairman and ultimately — after a bruising battle with institutional investors — was forced to quit the Coles board altogether in 2002.

“Now Lew is at it again: prising a windfall gain from a minority shareholder position and not breaking the law.”

Lew maintained his innocence, denying any knowledge of Yannon, but he did contribute to a $12 million civil settlement with Coles, brokered by then Australian Securities Commission, which embarked on one of its longest-ever investigations, spending more than four years digging into events at Coles. The commission believed Lew knew about Yannon all along — it said so in a 1996 civil court appearance — and was believed to have recommended criminal charges, as the ABC’s Karon Snowdon reported at the time hereand here.

The Department of Public Prosecutions baulked. Then-ASIC chairman Alan Cameron explained to journalists in January 2000 that ASIC had collected 253,500 pages of documents, served 435 notices on different parties, examined 93 people over 214 sitting days, and the transcript of evidence exceeded 12,500 pages. But Cameron cited the difficulty of investigating events so long after they had transpired, and no charges were laid. Cameron said the conclusion of the Yannon investigation marked “the end of the ’80s”. Then, as now, ASIC was panned as a toothless tiger.

From there Lew spent years agitating against the company and plotting his retribution until — as Pamela Williams portrayed in loving detail in a series for The Australian Financial Review in 2007 — he talked private equity raiders KKR into launching a bid for Coles, which put the supermarket giant in play, and ultimately sold his stake to Wesfarmers at a hefty profit. Lew’s wealth only grew: last week’s Rich List put his fortune at $2 billion.

Now Lew is at it again: prising a windfall gain from a minority shareholder position and not breaking the law. Using derivatives, over six weeks in May-June Lew managed to quickly and quietly buy a 10% stake in David Jones, which could be enough to block the stunning $4-a-share takeover bid announced by South Africa’s Woolworths Holdings in April. The share price soared, and Lew paid full freight for his DJs shares, spending $209 million or $3.94 a share.